It's All In The Mix

by: FTSE Russell

By: Rolf Agather, managing director of North American research, FTSE Russell

Key takeaways from Schwab IMPACT 2017

Attending the most recent annual IMPACT conference of Schwab financial advisors in Chicago, I was astonished by the diversity of organizations that serve the financial planning community. I was also struck by the incredible variety of choices that financial advisors and, by extension, individual investors can draw from today to achieve objectives and navigate a turbulent world of markets, finances and investing.

Being a global index provider affords us a unique vantage point to comment on the mix of tools available to today's investor. Specifically, active and passive investment management techniques are converging and it takes financial planning and asset allocation expertise to combine these elements to most benefit their clients. At IMPACT, this combination of strengths was on full display.

In one discussion I saw Tony Davidow, Alternative Beta and Asset Allocation Strategist for the Schwab Center for Financial Research, set the stage for an evolving approach to asset allocation by revisiting modern portfolio theory; making the case for the strong role of both active and passive strategies in a global investment portfolio. "The world was different in 1952 when Harry Markowitz sat on a park bench and came up with MPT," said Davidow; not to discount the relevance of Markowitz' landmark theory but rather to introduce the concept of a market with many new realities, including increased volatility and correlations, generationally low bond yields and lower expected equity returns. This backdrop requires a broader set of asset classes to appropriately diversify assets to achieve each investor's goals and objectives.

Davidow stressed that investors have a much more robust tool box to draw on than ever before and suggested a smart mix of traditional market cap index-based investments, active investment management and newer smart beta index-based investments to meet a wide range of tactical and strategic portfolio objectives.

The ETF team from OppenheimerFunds, a traditional active investment manager venturing into index-based ETFs in recent years, led a discussion that outlined the new wave of smart beta investment management. Head of ETF investment strategy David Mazza walked the audience through the approach this traditional active investor has used for its new ETF offering. He described the firm's new dynamic multi-factor ETFs as an example of where the best active insights and automation and efficiency of indexes can be utilized in a way that can benefit the end investor. Listening to David and his colleagues' discussion, it became clear that the convergence between active and passive investment strategies is no longer merely an academic discussion, it is happening. The new dynamic multi-factor ETFs recently introduced by the Oppenheimer team can rotate into a unique multi-factor combination in response to a shift in economic conditions depending on their strategic forward-looking market view.

And, before you start thinking that "smart beta" has taken over and traditional market cap approaches have been forgotten, I also spent some time with our friends at Franklin Templeton, one of the largest global active investment managers, who has recently launched a total of 16 (14 country and two regional) ETFs that are based on traditional market cap-weighted indexes from FTSE Russell. Franklin Templeton has introduced these new products to address the needs of their clients, rounding out its Franklin LibertyShare ETF offerings they also include smart beta and active ETFs.

So what can we take away from all of this as investors? In my mind, it all comes back to finding the right mix. The investment community is more multi-faceted and diverse than ever before. Investors today can draw on all the ingredients that surround them, from financial advice to active and to passive investment management. We have more choices than ever and more tools at our disposal today as investors. Take advantage of it!

---------------

© 2017 London Stock Exchange Group plc and its applicable group undertakings (the "LSE Group"). The LSE Group includes (1) FTSE International Limited ("FTSE"), (2) Frank Russell Company ("Russell"), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, "FTSE TMX") and (4) MTSNext Limited ("MTSNext"). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. "FTSE®", "Russell®", "FTSE Russell®" "MTS®", "FTSE TMX®", "FTSE4Good®" and "ICB®" and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.

All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Russell indexes or the fitness or suitability of the indexes for any particular purpose to which they might be put.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this communication should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

This publication may contain forward-looking statements. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking statements are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. Any forward-looking statements speak only as of the date they are made and no member of the LSE Group nor their licensors assume any duty to and do not undertake to update forward-looking statements.